Corporate Bonds
Regarding this exam topic, A zero-coupon bond:
Zero-coupon = no interest payments, sold at deep discount, phantom income tax issue.
Complete Analysis & Legal Rationale
Zero-coupon bonds pay no periodic interest. They are sold at a deep discount and the investor's return comes from the difference between purchase price and par value at maturity.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Zero-coupon means NO interest payments during the life of the bond.
Matches the verified teaching point in the explanation.
Zero-coupon bonds have no coupon rate at all, variable or fixed.
Both government (STRIPS) and corporations can issue zero-coupon bonds.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.